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The ‘build it and they will come’ strategy of Bill Wavish and Bernie Brookes, the former Woolworths supermarket executives who took the helm at Myer, has not met any of the company’s targets.

Despite adding new retail floorspace each year, Myer’s sales have shown no real growth and, in some reporting periods, have fallen, along with marketshare.

The early profit gains by Myer under private equity management and its initial return to the Australian Stock Exchange were generated by cutting costs, with the store expansion crimping the gains by adding extra overheads while failing to achieve the anticipated sales lift.

In the past three years, Myer has shelved several planned new stores and has closed six underperforming stores with the realisation that expansion had not and, going forward, was unlikely to improve trading results and bottom line earnings.

The store network is under review as incoming CEO, Richard Umbers, attempts to create a sustainable business model.

Analyst projections suggest that at least seven and as many as 20 Myer stores could be closed, surrendering sales and marketshare but strengthening productivity and profitability.

The review is understood to be assessing how the chain’s online sales platform can be leveraged to offset some of the loss of sales, potentially through a reworking of the omni-channel strategy to enhance the brand and integrate online and instore sales more effectively.

E-commerce and the store network model are two critical areas of the current operational review, a detailed review that follows a strategic analysis of the business that led to the resignation of Brookes and succession of Umbers.

Umbers, who was appointed as chief information and supply chain officer in September of last year, has an extensive background in logistics and IT and an understanding of online retailing.

He was also responsible for financial services and the Myer One loyalty program in the six months prior to his appointment as CEO.

Supply chain and sourcing, as well as marketing and loyalty programs are key elements of the review, but the store network and online platforms are the crunch issues.

Myer is concerned that the current store network could be an anchor on the group for years to come if it doesn’t exit underperforming stores with little prospect of improved trading results in the future.

Umbers believes Myer needs to be more nimble if it is to fend off international competitors, and the long tail of underperforming stores and misfires on new store openings has left the department store more vulnerable to its rivals.

He has already shown there is no room for sentiment, with the decision to close the Top Ryde store in Sydney, which opened with considerable fanfare just four years ago.

It is understood that the Myer store at Top Ryde is generating sales of around $20 million a year against a forecast turnover of $30 million when the store was opened.

The centre is planning to replace the two level Myer store with a supermarket, major tenant, and mini-major, which is expected to be one of the international retail entrants.

In the past three years, Myer has closed Elizabeth in South Australia, Dandenong and Forest Hill in Victoria, Fremantle in Western Australia, and Hurstville and Tuggeranong in NSW.

It has shelved planned new stores at Woden Plaza in the ACT, Green Hills in NSW, and Plenty Valley in Victoria, and it is understood that a proposed 2017 opening for a store at Casuarina Square in Darwin is now also in doubt.

The Top Ryde exit will send shivers through landlords as it indicates Myer is prepared to cut its losses on stores that are not trading to expectations and locations that overlap and cannibalise sales from other stores.

Analysts estimate that the exit costs from stores could run as high as $300 million or more for Myer, but landlords could well be confronted with claims from specialty tenants who were signed to leases on the basis that the department store group was a long term tenant and anchor.

While some centres, like Top Ryde, may be able to lure international tenants, most that Myer would be likely to exit would have little appeal to global brand retailers, and the number of large footprint retailers keen to expand their store networks is limited now.

Under Wavish and Brookes, Myer planned to open 15 new stores in the five year period to 2015, expanding the store network to around 80 stores.

The financial meltdown of 2009 that disrupted the store development program and subdued consumer spending in the past five years has not helped the retailer to reach its sales forecasts on the stores that have opened.

Analysts now expect Myer is likely to prune its store network to at least 60 stores, five less than when the growth strategy premised on new store openings was announced.

Some observers expect even more savage cuts to the network that would reduce the number of stores to around 48 locations in prime, strategic markets.

The smaller network view of analysts is partly based on the national store footprint of rival, David Jones, and partly on the productivity of Myer stores.

Following his appointment in March, Umbers said some elements of the Brookes turnaround and growth strategy for Myer represented “solid retail fundamentals”, but overall it did not deliver a business model able to respond the new retail environment.

Myer sales have failed to lift and earnings have collapsed, despite new stores and refurbishment projects, category and range restructuring, loyalty marketing programs, and an increasing focus on housebrand ranges.

This story first appeared in Inside Retail PREMIUM issue 2044. To subscribe, click here.